Great blog posts about macroeconomics

The Increase in Minimum Wage as Proposed in the Fair Minimum Wage Act of 2013

The Fair Minimum Wage Act of 2013 proposes an increase in minimum wage to $10.10 per hour. As of July 24, 2009, the federal minimum wage is $7.25 per hour. This $2.85 increase would raise wages of 27.8 million Americans. If one were to calculate what a worker would make annually at current and proposed minimum wages working 40 hours a week (your typical 9-5, Mon-Fri job) and 52 weeks a year they would find that at the current $7.25, one would make $15,080 and at the proposed $10.10, one would make $21,008. This increase of nearly $6,000 would move both a family of two and a family of three from below to above the given poverty lines of $16,078 and $18,776 respectively.

According to the Economic Policy Institute, out of those who work at minimum wage, 14.2% work 20 hours or less per week, 32.0% work 20 – 34 hours per week, and 53.8% work 35 or more hours per week at minimum wage. So out the 27.8 million workers who work at minimum wage, approximately 3.95 million work 20 hours or less, approximately 8.89 million work 20-34 hours, and approximately 14.96 million work 35 hours or more per week at minimum wage. This break down bares significance in that it demonstrates the amount of workers who are affected and to what extent they are affected by this increase of minimum wage.

This is all fine and good but as our intro level economics course have taught us, given an increase in minimum wage, we should see an increase in unemployment. A raise in minimum wage means the price of low wage workers increases leads to firms being less likely to hire those low wage workers. However some economists, such as Professors Dube, Lester, and Reich at UC Berkley in their paper “Minimum Wage Effects Across State Borders,” have found little to no effect of a minimum wage hike on unemployment. This could be for a few reasons: employers may cut back on benefits or hours of training, employers may cut back wages of higher paid employees, employers could raise prices, employers could become more efficient, or (most likely few, given that most are profit maximizers) employers could just take the hit to profits.

So given that this proposal will increase incomes of 27.8 million people and the fact that unemployment may increase as a result, will the positive effects of this increase in minimum wage outweigh the negative effects and help out the US economy?

This article by Mike Konczal of the Washington Post correlates multiple economic expert studies that all have stated that raising the minimum wage would propel a large amount of the U.S. population out of poverty. In fact, Konczal argues that a raise in the wage would greatly affect the low-income workers and have little economic significance for the middle class. This can be seen in the dramatic elasticity fluctuation depicted in the graph.